Unimor Capital Corporation

Tag: home buyer

  • Planning & Establishing a First Home Savings Account

    Planning & Establishing a First Home Savings Account

    Saving up for your first home can be stressful and challenging in this ever-changing market. Recently the federal government of Canada has created a way to help make the process a little easier, so you can begin saving sooner.

    In the 2023-2023 budget, they announced several measures to help Canadians who are trying to save money for a down payment on the purchase of their first home, by creating a First Home Savings Account (FHSA). This new savings account is open to eligible taxpayers starting in April 2023.

    Contributions to the Plan

    This new benefit is open to any resident of Canada who is at least 18 years of age and has not lived in a home which they own in any of the current or previous four years. If criteria are met, you are able to open the plan, contributing up to $8,000 annually. Contributions can be made annually, ending at the end of the calendar year. Unused portions of contributions can be rolled over into the following year. Regardless of the timeline, the maximum you can contribute to this plan is $40,000. Contributions under this plan are similar to contributions made to RRSP accounts.

    Withdrawing from the Plan

    On a qualifying purchase (when money from the fund is used to make a purchase of a qualifying home) the money contributed, as well as any investment income, are able to be withdrawn tax free. The plan holder must have a written agreement to buy or build a home located in Canada before October 1 of the following year. The plan holder also must intend to occupy that home within one year of buying or building it.

    Other Information

    Individuals who open a FHSA have 15 years from the opening date to use funds in the account on a qualifying purchase.  If the money is unused in the account after 15 years, or at the end of the year when they turn 71), the account must be closed with funds either being transferred to a RRSP or RRIF (Registered Retirement Income Fund) on a tax-free basis.

    This plan is an addition to the existing Home Buyer’s Plan (HBP), which allows an individual to withdraw up to $35,000 from their RRSP and use those funds to purchase a first home. Any funds withdrawn through the HBP however must be repaid over the next 15 years. Both plans are options for buying your first home, however an individual is not permitted to withdraw from both FHSA and a HBP withdrawal in respect to the same qualifying home purchase.

  • How to Get Around Canada’s New Mortgage Rules

    How to Get Around Canada’s New Mortgage Rules

    The tighter lending rules that came into force July 1st are making it harder for some Canadians to buy homes, but mortgage professionals say there’s no reason to panic. The Canada Mortgage and Housing Corporation (CMHC) announced plans in early June to reduce borrowing limits, demand higher credit scores and restrict down payments for anyone who needs default insurance from the agency. That kind of insurance is mandatory for ‘high-ratio’ buyers putting less than 20% down on a home. While the change is scary, buyers still have ways to shape up in the eyes of the CMHC — or dodge the agency entirely.

    Evan Siddall, President & CEO of CMHC, explains the changes are meant to steady the economy in the age of COVID-19 by controlling debt and protecting lenders from people who pose a high risk of defaulting. While the rules will sting for some people trying to crack their way into the real estate market, they could be a boon for others. By reducing the number of buyers, the crown corporation hopes to quell demand and balance out home prices.

    “COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” Siddall explained in a statement. These actions will protect homebuyers, reduce government and taxpayer risk, and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.

    What are the new rules?
    First, homebuyers seeking a high-ratio mortgage are no longer able to submit a down payment with money borrowed from credit cards, unsecured personal loans, or lines of credit. Only ‘traditional sources’ of cash, such as savings, equity from the sale of a house or financial support from relatives, will fly.

    Second, the minimum credit score to qualify has jumped from 600 to 680. If you don’t know your credit score, you can check it for free online. If it’s too low, you’ll have to take steps to improve it.

    Third, borrowers are now capped at spending 35% (GDS) of their gross income on housing. That includes the mortgage itself, property taxes and utilities. They’re also only able to spend up to 42% (TDS) of their gross income, taking into account all of their other loans and credit.

    Before, buyers could spend up to 39% of their gross income and borrow up to 44%. That means potential buyers saw their purchasing power cut by up to 12%. For example, someone with a $100,000 income buying a single-family home could have qualified for a $490,000 mortgage with 5% down before July 1st. Now, their limit has dropped to $435,000.

    What should homebuyers do?
    It’s important to recognize that, if you’re not a risky borrower in the eyes of the CMHC, these changes may not affect you at all.
    “They are impacting a subset of borrowers who need mortgage insurance,” says Toronto-based broker Sean Cooper, author of the book Burn Your Mortgage. Even those homebuyers, he says, “still have options.”

    You see, the government doesn’t care whether it insures your mortgage. It just needs to know your mortgage is insured. Homebuyers excluded by these changes should look around for a lender that also works with Genworth or Canada Guaranty, the country’s two private-sector providers of mortgage default insurance. Those companies have decided not to tighten their restrictions.

    “They are usually lockstep with the CMHC, so this is definitely out of the ordinary,” says Cooper. So even if the CMHC thinks you’re a bad bet, you’ll still find a range of lenders that want your business.

    Is anyone else affected?
    The other good news is that the new lending rules don’t impact homeowners who want to take advantage of today’s historically low rates.

    “As of right now, the rules haven’t changed for refinancing,” says Cooper. “The fact that Genworth and Canada Guaranty didn’t match the CMHC’s changes makes me think that there’s less likelihood of more changes in the future.”

    Today’s rock-bottom rates are predicted to last for at least 12 to 18 months, until the economy starts to stabilize from COVID-19 crisis. That means there’s no better time to see how much you can save on interest and your monthly mortgage payments. The opportunity to hold on to more cash is especially welcome while the country’s financial outlook remains uncertain.

  • Millennial’s Guide to Home Buying

    Millennial’s Guide to Home Buying

    The transition from rent to home ownership has many obstacles for millennials. We’ve put together this guide to help young people make home ownership work for them. Buying your first home is one of the biggest financial decisions you’ll ever make.  For millennials struggling with lower income and savings, the dream of home ownership can appear out of reach in today’s market.

    All hope is not lost. Low mortgage rates and a gradually improving job market are empowering millennials to invest in property rather than rent. By taking a few practical steps, you can be well on your way to buying your first home. Investing in your first home requires careful planning, effective judgement and setting reasonable expectations.  Below is a six-step process for making that happen.

    1. Shop within your means.

    If you’re a millennial first-time buyer, the selection of homes you can afford is likely much smaller than established buyers. After all, you don’t have any equity yet, and will be relying purely on savings to invest in your first down payment. An important part of setting reasonable expectations is shopping within your means. Even if you qualify for a large mortgage, there’s no rule that says you must use it all. As a first-time home-buyer, your goal should be to finally start building equity. If you want a property but can’t afford it, you shouldn’t buy it. It’s as simple as that!

    1. Make sure you have enough for a sizeable down payment.

    In Canada, most professionals will advise you to make at least a 20% down payment on your property to avoid paying homeowner insurance.  While this is recommended, it might not always be possible, especially if you don’t want to delay your first real estate investment.  Even if you can’t pay at least 20%, you should still be prepared to make a decent down payment to minimize the total loan amount.  In Canada, 5% is the absolute minimum you must put down.

    1. Sort out your finances.

    Home ownership carries significant expenses that extend beyond your down payment and monthly mortgage payment.  Property tax, insurance, closing costs and utilities must all be factored into your decision both at the time of closing and after you’ve moved in.  When deciding to enter the market, be sure you have enough money to cover the down payment and all the ancillary costs associated with closing your home.  You’ll also want to budget carefully to make sure you can afford to pay your mortgage and living expenses after you’ve moved in.

    1. Compare neighbourhoods and regions.

    Most home-buyers are limited by geography in shopping around for property.  For millennials living in the big city, this can make affordability a greater challenge.  That’s why it’s essential to compare neighbourhoods and property types.  It’s equally important to consider location and whether you are willing to commute to work each day.  Proximity to your job may be convenient, but will likely be more expensive, especially if you live in a big city.  Working with a real estate agent can help you develop a better view of property values based on location and property type.

    1. Use a Mortgage Broker.

    Financing a home can be a complicated process.  That’s why more and more Canadians are turning to mortgage brokers to steer them in the right direction.  It used to be the case that most people went straight to their bank to finance their mortgage.  Now, many people visit a mortgage broker first.  That’s because a broker is tasked with one job: finding you the best deal possible.  They work with the big banks as well as non-traditional lenders to match you with the best interest rate and lending terms on the market.

    1. Maximize your benefits.

    The government has made it a little easier for first-time home-buyers to enter the market.  If you’re a first-time buyer, you can use your RRSP account to finance your down payment tax-free up to a maximum of $25,000.  This means you can take up to $20,000 from your RRSP account and put it toward a down payment with no tax penalty.  The First-Time Home-buyer Credit can also help you reduce the amount of taxes you owe.  Various provinces, such as Ontario, also have a land transfer tax refund that will greatly reduce the amount of land transfer tax you owe.

    As a millennial, shopping around for your first home can be both rewarding and challenging.  This six-step process will help you make the most out of your experience.

  • How You Can Benefit from Other Home Buyers’ Mistakes

    How You Can Benefit from Other Home Buyers’ Mistakes

    Most homeowners admit to making at least one mistake when they purchased their home, according to the 20th Annual RBC Home Ownership Poll. Listed below are the top mistakes made by first-time home buyers:

    The Property Needed Work
    Even those buyers with home inspections encountered issues after they moved in.

    Not Having a Bigger Down Payment
    A small down payment meant that many buyers found themselves overwhelmed by the costs of keeping a home.

    Not Getting a Home Inspection
    By skipping this step, some buyers found themselves faced with astronomical repair costs. Particularly those who had purchased older homes with ancient plumbing and wiring.

    Not Knowing the Closing Costs
    Some ill-informed buyers didn’t account for additional costs such as the land transfer fees, the title fee, lawyer’s charges etc…

    Not Getting Pre-approved for a Mortgage
    By not obtaining a pre-approval, many home buyers fell for homes that were out of their price range.

    Falling in Love with the Wrong House
    Buyers found they ignored obvious structural or electrical problems because the home had 10’ ceilings or a great stone fireplace. Beware of buyer’s remorse.

    Not Checking the Market Value of the Neighbourhood
    Some purchasers paid too much for homes that were renovated above and beyond neighbouring properties. This may price them out of the market when it comes time to sell.

    Focusing on Interest Rates
    New buyers felt compelled to buy because mortgage rates were low. Experts recommend buyers focus on the mortgage product that works for them instead of just trying to score a super-low rate.